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The Wall Street Journal is reporting that Serta Simmons Bedding LLC filed for chapter 11 bankruptcy on Monday in the U.S. Bankruptcy Court in Houston, Texas. The bedding manufacturer is seeking to implement a reorganization plan to cut its nearly $1.9 billion in debt to $300 million.

Good news for Serta Simmons' employees comes from Reuters who is reporting that they "have lined up $125 million in financing to keep operating, including to pay its 3,600 employees."

Not sure how this will affect plans to open " a massive new, state-of-the-art facility in Janesville, which is expected to bring scores of new jobs to Rock Co. soon after it opens, with the potential of more to come after that" that was reported on 4/12/2022 by nbc15. Channel3000 reported that the new facility "slated to open in 2023, will initially employ over 300 people."

In a Chapter 11 bankruptcy, a business may continue to operate while creditors and the court must approve a plan to repay the business's debts. Chapter 11 bankruptcy is rarely used by individuals. The vast majority of consumer bankruptcies are either a Chapter 7, usually the quickest kind of bankruptcy, or Chapter 13 that puts the debtor(s) in a 3 to 5 year payment plan.

Like a cramdown in a Chapter 13 case, your car payments may be able to be reduced with a redemption in a Chapter 7 bankruptcy case. In a redemption, the Debtor pays the lender off with a payment equal to the value of the car. The Debtor is then no longer obligated to pay the lender the remaining balance of the car loan. What a deal! Well, maybe. For a redemption to work, the balance on the car loan needs to be significantly higher than the value of the car. Usually, several thousands of dollars. Most Debtors don't have thousands of dollars lying around. So, they redeem the car by obtaining a redemption loan from a redemption loan company. These are usually higher interest loans. But, if the numbers work, the Debtor can potentially save thousands of dollars over the life of the loan even if paying a higher interest rate because the redemption lowers the principal of the loan.

A redemption is achieved by filing a Motion to Redeem with the bankuptcy court. In the Motion the Debtor proposes a value of the car. If the lender agrees with the value of the car, then the redemption loan company will send payment to the lender and that original lender is now out of the picture. The Debtor will then have a new car loan, but now it will be with the redemption loan company and often with lower payments over a shorter term. If the lender does not agree with the value set forth in the Motion to Redeem, then some negotiations may go on to resolve that issue. If the parties can't agree on the value of the vehicle, then ultimately the bankruptcy judge will decide upon the value of the car. But it rarely gets to that point.

Redemptions have recently become more challenging for Debtors due to the skyrocketing values of used cars. But, used cars seem to be coming back down to earth, and if that trend continues, redemptions could become common again in the future.

Give us a call if you would like to learn more about redemptions and whether one would be beneficial for you.

In a Chapter 13 bankruptcy a Debtor may be able to reduce the principal and interest that is paid on a car loan through a cramdown. In order to reduce the principal that a Debtor pays on a car loan, the car loan debt must have been incurred more than 910 days (approximately 2 1/2 years) before the bankruptcy case was filed. If that is the case, then the Debtor is only required to pay the value of the car at the time of the filing of the bankruptcy case over the life of the Chapter 13 Plan (from 3 to 5 years) with an interest rate that is currently about 5% (plus the trustee's fee). To determine the value of the vehicle one could look at the N.A.D.A.'s website and the value that is usually agreed to between the Debtor and the car lender is somewhere between the trade-in and retail value. If repairs are needed to put the vehicle into proper working order, an estimate for those repairs should be obtained in order to lower the value of the vehicle accordingly. It is not uncommon for a cramdown to save the Debtor thousands of dollars over the life of the Chapter 13 Plan. There is a similar mechanism in Chapter 7 for reducing the payoff of a car loan to the current value of the vehicle. In a Chapter 7 it is called a redemption. We will provide more details about redemptions in a subsequent blog post. For a more complete explanation of cramdowns and redemptions, give us a call at (608) 718-0497.

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